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What if Your Kids Decide Against College?

What if Your Kids Decide Against College?

June 05, 2024

As a parent or grandparent, you might have diligently saved in a 529 account to fund your child's or grandchild's college education. But what if they decide that college isn't the right path for them? It's a valid concern, especially as more people opt for alternatives to traditional four-year colleges.

This scenario is more common than you might think. Fewer students are attending college, and the costs keep rising. Since 2010, undergraduate enrollment rates in the U.S. have declined, while college expenses have increased by over 12 percent.

A 529 plan is a tax-advantaged way to save for college, but it’s important to consider state tax treatments, fees, and expenses before committing. The state tax deduction availability depends on your state of residence, and state tax laws can differ from federal tax laws. Earnings on nonqualified distributions will incur income tax and a 10 percent federal penalty tax.

Flexible Options for Your 529 Plan

Having a 529 account doesn't mean the funds are only for a four-year college education. Here are several ways you can use the money saved in the account:

  1. Two-Year Programs: You can use the funds for associate degrees or trade schools. These programs often lead to lucrative careers without the need for a four-year degree. Investing in these programs still supports your child's or grandchild's future by equipping them with valuable skills.
  2. International Education: 529 funds can be used for education expenses outside the U.S. Many international institutions offer programs that might interest your student. However, certain restrictions apply, so you’ll need to research this option thoroughly.
  3. K-12 Education: You can pay up to $10,000 per year in tuition expenses for elementary, middle, or high school with 529 assets. Additionally, a lifetime maximum of $10,000 of 529 assets can be used to repay existing student loans.
  4. Transfer to Another Beneficiary: If the original beneficiary doesn’t use the 529 plan, you can transfer the funds to another family member who may be preparing to attend college. You can even use the funds for your education if you decide to return to school.
  5. Roth IRA Transfer: Starting in 2024, under the SECURE Act 2.0, a 529 account holder can transfer money to a Roth IRA under certain conditions. The plan must be open for at least 15 years, and the beneficiary must be the Roth IRA owner. The lifetime limit for such transfers is $35,000, and they must adhere to Roth IRA annual contribution limits.

Important Considerations

It's crucial to note that withdrawing money from a 529 account for nonqualified expenses will incur federal income taxes and a 10 percent penalty on the earnings portion. However, if a scholarship or grant is awarded, you can withdraw that amount penalty-free.

For some young adults, college might not be the best fit. Those aspiring to creative or vocational fields might find more value in specialized schools or smaller classes. While universities offer these courses, they often come with higher costs and the requirement to take additional courses for a degree.

Supporting Your Student's Goals

As you guide and support your student through these decisions, remember that a 529 account offers flexibility to adapt to their unique educational journey. By understanding the account's functions and working with a financial professional, you can discover many opportunities to support your student's goals.


  1. Education Data Initiative, August 13, 2023
  2. Pew Research Center, October 3, 2023
  3. World Economic Forum, January 19, 2023
  4. Deloitte Insights, May 17, 2023
  5., May 5, 2022